September 2006

Looking ahead at milk and cheese demand (Hoard’s Dairyman, Sept. 25, ’06). Authors Todd M. Schmit and Harry M. Kaiser, Dept. of Applied Economics and Management at Cornell, write, “Studies have shown that recent changes in per capita consumption are mainly a result of changes in population demographics and food spending patterns. . . . For example, for 1995 through 2004, we estimated that the primary factor contributing to the reduction in per capita fluid demand was a drop in the portion of the population that is 5 years old and younger. We also found that the most important contributors to growth in per capita cheese demand were a growing Hispanic population and more money being spent on eating away from home. . . . (W)e project per capita fluid consumption to continue to decline but at a slower rate than it did from 2002 to 2005. . . . Growth in per capita cheese consumption is expected to continue over the next 10 years. . . . We actually anticipate that growth in per capita cheese consumption will strengthen over time.”

Is your business making improvements that’ll cut energy use? (Kiplinger Agricultural Letter, Sept. 29, ’06). “You can get a tax deduction of up to $1.80 a square foot of space for the cost of improvements that cut overall energy use by 505 or more. For lesser savings…16.67% to 50%…the maximum write-off is 60 cents/sq.ft. By late fall, the Energy Dept. will issue guidelines telling businesses how they must calculate the energy savings to qualify for the write-off. Qualifying improvement include energy-efficient HVAC systems, boilers, lighting, windows, etc. Improvements must be made before Dec. 31, 2007.” More information is available at http://www.energy.gov/taxbreaks.htm.

Cutting manure transportation costs (Manure Manager, Sept/Oct ’06) describes “a manure dewatering technology . . . that could make hauling of manure solids greater distances less expensive than the traditional method of pumping, hauling, and applying manure effluent with tanker trucks.” Ten Cate Nicolon’s Geotube Nutrient Recovery System “can be installed between a manure gathering system at the barn and the lagoon, or to remove and store solids from an existing lagoon for land application at some future date at the farm’s convenience.” Additional information is available at the Ten Cate Geotube website: http://www.geotubes.com/agro/agro_index.html.

Rest easier by tackling unpaid bills and finance charges (Hoard’s Dairyman, Sept. 25, ’06). The “Dairy Business” column by Charles E. Gardner, D.V.M, explains the wisdom of talking to your banker “if you are missing discounts or paying finance charges. Assuming your operation cash flows in normal times, he or she can probably help you. . . . The simplest way to structure this new debt is a revolving line of credit. Instead of missing a discount or becoming past due . . . draw . . . against this line of credit. The interest on this loan might be prime plus 1 percent or 9.25 percent today; 9.25 percent per year is 0.77 percent per month, and that is obviously a lot better than 2 percent lost discount, plus a 1.5 percent finance charge. Each month, some additional money should be drawn against the line of credit to pay all bills in time for cash discounts. . . . When cash flow improves the line of credit can be paid down much easier without the added burden of missed discounts and finance charges.”

Pennsylvania Agricultural Issues Brought to Farm Bill Forefront (Lancaster Farming, Sept. 30, ’06). PA Sec. of Agriculture Dennis C. Wolff’s “Plans for Pennsylvania” column notes that the Seeds of Change Agricultural Policy Initiative developed grassroots recommendations that Gov. Rendell will use to advocate better policies and programs in the 2007 Farm bill. The Milk Income Loss Contract (MILC) was one of the common threads of interest during Seeds of Change sessions. “The MILC program, administered by the Farm Safety Agency has brought nearly $220 million to Pennsylvania since the program began. It provides a price floor for domestic dairy producers when milk falls below a certain threshold helping to sustain the dairy industry in times of unstable prices. We need to sustain this program to help dairy producers manage risk and successfully budget for their dairy enterprises.” For more information on the Seeds of Change Initiative, visit www.agriculture.pa.us and click on “Seeds of Change.”

Expect to see a lot more small and midsize firms for sale. Baby boomers nearing 65 and eager to retire will lead the charge (The Kiplinger Letter, Sept. 29). “More than 75% of owners in a recent survey said they wanted to move on. To beat the rush and get the best price, start planning now. That way, you’ll be ready when market conditions tell you it’s time. Too many owners hold off until they feel ready, then have to spend months putting paperwork in order, finding a buyer and planning the transition.”

What Drives Your Company? (Turf North, Sept. ’06). “By identifying the primary drivers for your company, you can align the actions and priorities of the entire team, to improve productivity and morale. . . . It is common to see owners and managers place too much emphasis on this number (gross sales) rather than profit margin. . . . However, remember that it is possible to have a profitable business with unhappy employees and unhappy customers. Don’t let good, but temporary profit margins deceive you. . . . Business goals, objectives, action plans and values should all be aligned in an effective and successful company. . . . Although it is ambitious to have the exact same motivations for every person in the company, it is healthy to discuss and acknowledge everyone’s reasons for coming to work every day.”

Get Noticed on the Web (Turf North, Sept. ’06). “If you have a Web site for your business, you already know that it is a job in itself to not only maintain it, but to also get a decent ranking in the search engines,” says author Marcia Passos Duffy. “Getting on the Web’s radar screen is the only way a search engine—like the 800-pound search gorilla, Google—will notice your Web site. . . . . Search engines send a piece of software called a ‘spider’ out to your Web site to find out what is written in it (the content). . . . The article quotes Shannon Smith, a Web site design professional, “The more content-rich your site is, the more likely the search engine spiders will find you. . .. . Lots of content is good, fresh content is good.” The article recommends, “One way to display fresh content without a lot of writing is to subscribe to an RSS feed (real simple syndication), which places articles relevant to your business on your site. . . . You might also want to consider a ‘content management system’ . . . for you to go into your own Web site and update news and articles.”

DHS Highlights Best Practices for Maintaining Legal Workforces (Turf News, Sept/Oct. ’06). “The U.S. Department of Homeland Security (DHS) announced a new initiative and best business practices to help employers ensure they are building legal workforce through voluntary partnership with the government. Called the Immigration and Customs Enforcement (ICE) Mutual Agreement between Government and Employers (IMAGE), the program is designed to build cooperative relationships between government and businesses to strengthen hiring practices and reduce the unlawful employment of illegal aliens.” This DHS press release and associated links are available at http://www.dhs.gov/dhspublic/display?content=5757.

Study Shows Farm Sector Facing Labor Squeeze (Country Focus, PA Farm Bureau, Sept. ’06). “New information released by the U.S. Agriculture Department’s National Agricultural Statistics Service (NASS) pegs the number of hired workers on U.S. farms during the first quarter of 2006 at 718,000, a decrease of 3.75 percent from one year ago. . . . The national average wage paid to farm workers is at an all-time high, $9.79 per hour, according to the report. That rate is up nearly 5 percent from one year ago and up 18 percent from 2001.”

Dairy State Land Values Rise Significantly reports the “Dairy Digest” in Country Focus (Sept. ’06). According to USDA, U.S. farm real estate values (measures the value of all land and buildings on farms) “reached an average per acre in Jan. 2006 of $1,900 –a record height. This is up from $1,650 in 2005. Pennsylvania had the fourth highest farm real estate value at $4,790 per acre an increase of 13.5 percent from 2005. Increases in farm real estate values continue to be driven by a combination of mostly nonagricultural factors, including relatively low interest rates and strong demand for nonagricultural land uses. You can find the report in its entirety at http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1446.

Look for cow numbers to start dropping soon says the “Milk Check Outlook” column in Hoard’s Dairyman (Sept. ’06). “Lower margins should result in the next herd contraction phase beginning within the next two to three months. Since the beginning of 1994, there have been four separate contraction and expansion phases in the U.S. dairy herd. . . . Currently we are in one of the longest periods of herd expansion since late 2000. The current expansion began in March 2005 and is in its 16th month. . . . Generally, expansion and contraction can be correlated to the milk-feed price ratio. . . With the ratio crossing below 2.50 in April, this would indicate that the upcoming herd contraction phase should begin sometime before October 2006 at the latest. . . . The bottom line is that your milk checks should be larger in 2007.”

Renaissance, not Retirement is the “Farming: The Next Generation” feature in the Canadian publication The Grower, (Sept. ’06). Subtitled, “You cannot take the business with you,” this article discusses the trouble many founders of successful businesses have with fully retiring from their business. Many consider themselves “more or less retired,” but still “go into the office, bang on the table, intimidate the help, alienate the customers, and mess up the business part time.” Author Gordon Wusyk says, “Retirement is only considered unpleasant if we lack purpose. If you expand your world there are an infinite number of things that are fascinating. The expansion of our world is truly the work of retirement. This is the renaissance of man. I invite you to share it.” Read the complete article at Renaissance

Suggested Reading (Golf Course News, Sept. ’06). Dr. Robert Milligan, professor emeritus from Cornell University and senior consultant with Dairy Strategies, writes, “With more than 300 new business books published each year, selecting the right one isn’t easy. . . . A recent study found the most important ingredient of employee job satisfaction is a worker’s relationship with his immediate supervisor.” Milligan suggest “three books to help you improve that relationship: “Gung Ho: Turn on the People in any Organization;” “Everyone’s a Coach: Five Business Secrets for High-Performance Coaching;” and, “Now Discover Your Strength.” The article describes these books and three other recommended titles about general leadership. Read the complete article at http://golfcoursenews.texterity.com/golfcoursenews/200609//

Consider an ESOP for business succession planning is the “Tools for Profit” feature in Dairy Herd Management (Sept. ’06). Author David Chlus writes, “As a farm business owner, your business is probably your most important asset and a substantial source of wealth. . . . For agri-business owners who wish to diversify their ownership while maintaining continuity and deferring taxes, employee stock ownership plans (ESOPs) can be an attractive option. . . . When developing your business-succession and wealth-diversification plans, ask your advisers if an ESOP plan would be a good option for you and your business.” Read the complete article at http://www.dairyherd.com/directories.asp?pgID=726&ed_id=5745.

Where are your retirement checks going to come from? (Hoard’s Dairyman, Sept. ’06). Retired Connecticut dairy farmer and co-op leader Louis P. Longo writes, “I have been retired now for 18 years. Since that time, the cost of living has gone up by an estimated 130 percent. Gasoline was $1.12 per gallon. . . . The price of my new car at that time was $5,300. That same car today sells for $28,300. . . . In 1987 when I retired, I personally did not visualize our economy being what it is today. However, my financial advisor did come close. If I would have had employed him earlier, he might have done better for me. . . . We as dairy businessmen, have a tendency to think we know it all because of the large volumes of investments we have made over the years. However, we must understand that all these investments are or were tied to the economics of efficient production in a business we fully understand. We played in our own backyard. The field of finance is a study and world by itself.”

Price Forecasts (Dairy Outlook, Sept. ’06). Dr. Ken Bailey writes, “The milk supply is expected to grow at reduced rates in the third and fourth quarters of 2006 . . . . This is due to the direct impacts of the July heat wave. The result will be higher prices for cheese and butter. Even higher prices for nonfat dry milk and dry whey will support higher Class III and IV prices. Look for the Class III price to average $11.46 per cwt in the third quarter and $12.54 per cwt by the fourth quarter. Class IV prices will average $10.82 and $11.45 per cwt in the third and fourth quarters. This will help push the all-milk price from a low of $12 per cwt in the second quarter to $13.64 per cwt by the fourth quarter. While these are not high prices given historical values, they do show some recovery.” Read Dairy Outlook at http://dairyoutlook.aers.psu.edu/reports/Pub2006/DairyOutlookSep2006.pdf.

Competitive Advantage and Agriculture (Lancaster Farming, Sept. 2, ’06). Matt Harsh, Penn State Cooperative Extension Educator for Ag Economic Development in the Capital Region, writes: “The concept of competitive advantage . . . theorized that a firm could extract competitive advantage from two broad generic competitive strategies: cost leadership, or differentiation. A cost leadership strategy is based on low cost production of a given product in the marketplace, and is often associated with the production of commodity type (unbranded) goods. . . . Conversely, differentiation strategies are based on the distinction of your product in the marketplace, such that buyers are willing to pay a premium for it over other available goods. . . . Strategic management theory dictates that in order to effectively compete, a company must choose to pursue either low cost production or differentiation strategies. . . Many producers in our region have become frustrated with traditional price-based competition, but seem unsure of how to truly differentiate. Choosing to neither continue to improve production parameters and compete on price, nor to find a viable differentiation angle, is essentially a decision to go out of farming in the long term. This is a harsh statement to make, and one that some may take exception to, but in the end it is the reality of the modern agribusiness environment.” Read Matt Harsh’s complete article at Competitive Advantage.

Premise ID Operating in Pa. (Lancaster Farming, Sept. 2, ’06). “Pennsylvania has begun a premises identification program to help animal health officials track and contain animal disease outbreaks in the commonwealth. To date, moe than 25,000 premises identification numbers have been provided to Pennsylvania farmers, replacing existing program and laboratory identification number. Pennsylvania is the second-leading stae in number of premises identified nationally. . . . For more information, . . . visit www.agriculture.state.pa.us and click on “Pennsylvania Premises Identification.”

Leaving Money on the Table. Part 1: What’s in your feed? is the Dairy Nutrition feature in Farming (Sept. ’06). Author John S. Hibma writes, “I am really surprised that in the six or seven years since component pricing was introduced into the Federal Marketing Orders that I can still come across farmers who either aren’t concerned with it, don’t care about it or are uninformed to the extent that they can’t tell me if they . . . are actively feeding their herds to increase milk protein. It is essential that dairy farmers understand that the price they now receive for their milk is based upon pounds of milk fat and pounds of milk protein, and not just how many pounds of milk are shipped each day and what the butterfat percentage is. . . Successful manipulation of milk protein is accomplished by feeding a diet that is properly balanced for carbohydrates and proteins in the rumen, along with the proper proportions and amounts of amino acids to the lower digestive system.”

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